stock (GE) closed 2.8% higher Thursday even after the company told investors it would earn less money this year than it did last year.
That may be a counterintuitive reaction, but GE shareholders are used to this kind of thing by now. GE stocks have been on a wild ride lately-even as the shares are up 42% year-on-year. The
Dow Jones Industrial Average,
by contrast, has gained 10.2%.
Thursday's stock-price reaction shows investors are not worried about earnings. They only care about one thing: the progress CEO Larry Culp makes turning around the American industrial icon. There is no shortage of strong opinions on Wall Street about how Culp can or can not deliver. Analyst target prices range from $ 6 to $ 18 per share.
Now that GE has issued earnings guidance, clarified assumptions about its insurance portfolio and outlined the challenges in its power division Barron's decided to check in what the Street is saying.
Melius 's Scott Davis rates GE stock a Buy with a $ 18 price target. He was not impressed with its 2019 guidance, calling it "low quality." The 55-cent number GE management offered for 2019 excluded restructuring and benefit costs, which totaled around 45 cents. The core of Davis's bullish argument seems to be bet bet on Culp. "We like the probability that Larry will fix the core operations within 2 years," he writes.
Gordon Haskett 's John Inch rates GE shares Underperform, with a $ 7 price target. GE's 2019 cash flow guidance was about what Inch was expecting, but he is not willing to take cash flow improvements in 2020 or 2021 yet. Inch also points out that GE supplies engines for the
(BA) 737 MAX jet, so Boeing's situation bears watching. If production is suspended for a period, it could temporarily affect aviation cash flow.
Credit Suisse 's John Walsh has a Neutral Rating on GE stock and an $ 11 target price. (Investors should realize that there are really only two ratings: Buy and Sell.) Walsh argues that GE's forecast for $ 1 billion in industrial cash burned this year is actually a good result, as he believed investors were bracing for a number closer to $ 3 billion . That just goes to show how difficult it is to predict a stock's reaction to any one event. You have to know what a company is likely to say and what investors think they are going to say. It's a parlay bet.
Barron's holds that GE has entered the next stage of its turnaround. Culp said Thursday that 2019 "will be more about what we do than we say." We agree. He lost his stock after 45% and 57% in 2017 and 2018, respectively. Now investors want to see the company hitting guidance and showing improvement in the power division.
Write to Al Root at email@example.com